BUSINESS

STUDIES
0450
 Unit 3:
Marketing
• Chapter 10: Marketing, Competition & the Customer
• Chapter 11: Market Research
• Chapter 12: Marketing Mix: Product & Price
• Chapter 13: Marketing Mix: Place & Promotion
• Chapter 14: Marketing Strategy
 UNIT 3:
MARKETING

Chapter 13:
Marketing Mix (Price)
LEARNING OBJECTIVES:
This chapter will explain:

1. The role of pricing decisions in marketing mix.

2. The main methods of pricing strategies and its benefits and limitations
3. The differences between price elastic of demand and price inelastic of demand
 MARKETING
MIX
(PRICE)

13.1 13.2
The role of Pricing decisions in the Pricing Strategies
marketing mix

13.4
13.3
Price Elasticity of Demand
Choosing the suitable pricing
strategies
TERMS: DEFINITIONS:
Cost-plus pricing The cost of manufacturing the product plus a profit mark-up

Competitive Is when the product is priced in line with or just below competitor’s prices
pricing to try to capture more of the market

Penetration When the price is set lower than the competitor’s prices in order to be able
pricing to enter a new market

Price skimming Where a high introductory price is set for a new product on the market

Promotional When a product is sold at a very low price for a short period of time
pricing

Price elasticity A measure of the responsiveness of demand to a change in price

13.1: The Roles of Pricing decisions in the marketing mix

Price: the amount paid by the customer to the supplier when buying a good/service

Based on Product Quality (PQ) --- the product meets the needs & expectations of customers

 PQ > E HAPPY willingness to pay increases

 PQ < E UNHAPPY unwilling to pay increases

The role of pricing is to:

 Achieve Marketing Objectives

• Example: breaking into new markets, to cover costs, etc….
 Flexible Element of Marketing Mix
• Price is the most adjustable aspect of the marketing mix.
• Prices can be changed rapidly, as compared to other elements like product, place or promotion.
 Right Level Pricing
• The wrong price decision can bring about the downfall of a company.
• It is extremely significant to fix prices at the right level after sufficient market research and
evaluation of factors like competitors’ strategies, market conditions, cost of production, etc
 Price Creates First Impression
• price is the first factor a customer notices about a product.
• While the customer may base his final buying decision on the overall benefits offered by the
product, he is likely to compare the price with the perceived value of the product to evaluate it.
 Vital Element of Sales Promotion
• Price is the most important part of the sales promotion.
13.2: Pricing Strategies

Cost- Plus Price Skimming

Pricing
PRICING
STRATEGIES
Promotional
Pricing
Competitive
Pricing
Penetration Pricing
Cost- Plus Pricing: the cost of manufacturing the product plus a profit mark-up

Involves:
• Estimating how many units of the product will be produced
• Calculating the total cost of producing this output
• Adding a percentage mark-up for profit

BENEFITS:
 Method easy to apply
 Different profit mark-ups could be used in different markets
 Each product earns a profit for the business

LIMITATIONS:
 Biz could lose sales if the selling price is higher than competitor’s price
Cost- Plus Pricing Example:
The total cost of making 2000 chocolate bars is $2000. The business wants to make 50% profit on each bar. The
calculation is as follow:

Calculation to find 50% of the selling price is as follow:

($2000/2000) x (50/100) = 0.50

Cost-plus pricing:

(total cost/output) x % mark-up = profit on each unit

($2000/2000) X 0.50 = $0.50 per bar is the selling price

The selling price for a bar is:

($2000/2000) + 0.50 = $1.50
Competitive Pricing: When the product is priced in line with or just below
competitor’s price to try to capture more of the market.

Involves:
• Setting price in line with competitor’s prices/below their prices

BENEFITS:
 Sales are likely to be high as the price is at a realistic level & the product is not over/under priced.
 Avoids price competition (which can reduce profits for all businesses in the industry)
 Often used when its difficult for consumers to tell the difference between the products of different
businesses

LIMITATIONS:
 If the costs of production are higher than competitors (mayb bcoz the product is of higher quality), then a
competitive pricing could lead to losses
 A higher quality product might need to be sold at a price above competitor’s prices to give it a higher
quality image
Penetration Pricing: when the price is set lower than the competitors prices in order
to be able to enter a new market.

For example:
A company launches a new chocolate bar at a price several cents below the prices of similar bars that are
already on the market. If this is successful, consumers will try the new bar and become regular customers.

BENEFITS:
 Often used for newly launched products to create an impact with customers
 Ensures that sales are made and the new product enter the market successfully
 Market share should build up quickly

LIMITATIONS:
 The product is sold at a low price, so profit per unit maybe low
 Customers might “get used” to low prices & reject the product if biz starts to raise the price after the
product’s early success
 Might not be appropriate for a branded product with a reputation for quality
Price Skimming: when a high price is set for a new product on the market.

Involves:
• New invention/new development of a old product

BENEFITS:
 Can help to establish the product as being good quality
 High R&D costs can be rapidly recouped from the profit made on the product at the high price
 If the product is unique, a high price will lead to profits being made before competitors launch
similar products

LIMITATIONS:
 The high price may discourage some potential customers from buying it
 The high price and high profitability may encourage more competitors to enter the market
Promotional Pricing: when a product is sold at a very low price for a short period
of time.

Involves:
• Buy one-free one (to sell off extra inventories)

BENEFITS:
 Useful for getting rid of unwanted inventory that will not sell

LIMITATIONS:
 Revenue will be lower bcz the price of each item is reduced
 Might lead to price competition with competition, causing the business to reduce price again
13.3: Choosing the Suitable Pricing
Strategies

HOW TO CHOSE A SUITABLE PRICING

METHOD????
 Price Skimming
 Penetration Pricing
 Competitive Pricing
 Promotional Pricing  New/existing product?
 Cost-plus Pricing  Product uniqueness?
 A lot of competition in the market for the product?
 Business have well-known brand image?
 Costs of making & supplying the product?
 Marketing objective of the biz?
13.4: Price Elasticity of Demand
The quantity of goods and
services consumers are
Measures by how much demand
willing and able to buy.
(sales) for a product changes when
there is a change in its price.

• P ,D

• P ,D

Price Elastic Demand: When consumers are very sensitive to changes in price
Price Inelastic Demand: When consumers are not very sensitive to changes in
price
Price Elastic Demand: When consumers are very sensitive to changes in price
 The % in D (sales) > than the % in P.
Price Inelastic Demand: When consumers are not very sensitive to changes in price
 The % in D (sales) < than the % in P.
Difference between Elastic Demand & Inelastic
Demand
THE END ^^